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Washington State Long-Term Care Act Payroll Tax – What Does It Mean For Employees And Employers?

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Washington State Long-Term Care Act Payroll Tax – What Does It Mean For Employees And Employers?

Long Term Care (LTC) funding is an issue due to the aging population in the United States. Based on the most recent survey by LongTermCare.gov, someone turning 65 today has almost a 70% chance of needing some type of long-term care during their lifetime, and 20% of people will need it longer than five years. LTC insurance can help defray the staggering costs of nursing care, which can run into the hundreds of thousands of dollars on an annual basis. In 2020, the national average for a semi-private room in a long-term care facility ran $7,513 a month or $90,156 a year.

The Washington State Legislature and Governor have decided to address how to fund a long-term care benefit through a mandatory employee payroll tax.  The bill is listed as the Long-Term Services and Supports Trust Program – RCW 50B.04.

Summary

The Washington Long-Term Care Program is the first public state operated long-term care insurance program in the United States. The funding for this is a .0058 (.58%) payroll tax on all employee wages starting on January 1, 2022. There is no cap on the amount of wages that are subject to this tax and include stock based compensation, severance, bonuses and other remuneration. Employers will be required to withhold the taxes from the employee and remit those premiums to the Washington State Employment Security Department (ESD) with their quarterly reports. There is a time limited option for employees to obtain long-term care insurance which will allow them to apply for an exemption from this tax-see more below. Additionally self-employed individuals, employees of a federally recognized tribe, and certain collectively bargained employees are exempt from this new tax.

How Do Employees Apply For An Exemption

There is a limited amount of time for employees to apply for an exemption from this tax if they decide that it is in their best interests. In order to qualify to apply for an exemption the employee must be 18 years or older when they apply for the exemption and also attest that they have other long-term care insurance as defined in detail in RCW 48.83.020.  The employees must purchase qualified long-term care insurance before November 1, 2021 to be eligible and apply for an exemption using a format to be determined by the ESD. The application period is between October 1, 2021 and December 31, 2022. Once an employee opts out both the tax goes away and the benefit goes away permanently under the bill.  There is nothing in the law that requires an employee to keep the coverage once they receive approval but it is important to note that they will never be eligible for benefits under this program. The employee is required to provide the employer an approval letter which requires the employer to stop withholding the tax. The end result is that the employer will need to have systems setup and education to ensure that they comply with the law and answer questions from employees.

When And Who Can Receive The Benefit

Benefits first become available January 1, 2025 for eligible individuals. The program provides up to $100 a day, up to a maximum life limitation of $36,500. Also due to other restrictions which are detailed in the law, employees who plan to retire in the next ten years may not qualify for any benefits even if they have been paying into the system. Also an employee who moves out of state will not receive any benefits. Eligible beneficiaries must need assistance with at least three of the ten common activities of daily living (ADLs) including being mobile, taking medications, bathing, eating, dressing, etc.

Recommendations

From our own experience discussing this with business owners, employees and insurance professionals it is clear this law is not fully understood by many employers and very few employees. Further guidance for employers, including educational materials to ensure employees are aware of the Program and that premium assessments will begin January 1, 2022, will be provided by ESD and DSHS by October 1, 2021. The timing of this guidance is very close to the deadline of obtaining LTC insurance by November 1, 2021. Accordingly as an employer it is important for your HR and accounting personnel to understand the requirements of the law early. Also it is prudent to reach out early to discuss with your insurance professionals the ability to obtain a LTC group plan that provides a voluntary option for employees to satisfy the LTC insurance for employees to become an exempt employee. For employees it is important to look at the potential benefit from being covered by the state provided benefit versus the payroll tax cost. If the employee decides to consider an exemption they may want to consider obtaining a private LTC insurance or seeing if their employer has or is considering a group voluntary plan.

High wage earners should work with their team of advisors to determine if the math pencils out on this new tax, or, if opting out and purchasing an individual policy would make sense and be more cost effective. Special care should also be given to employees that don’t plan on living in Washington after retirement or who plan to retire within ten years and would not receive benefits under the Washington Long-Term Care Program.

For more information, please contact your Berntson Porter representative at 425-454-7990. We are here to help!

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business. 


     

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